An important aspect of real ferromagnetic particles is the demagnetizing field resulting from magnetostatic dipole-dipole interactions, which causes large particles to break up into equilibrium domains. Sufficiently small particles, however, remain single domain in equilibrium. This makes them particularly promising as materials for high-density magnetic recording media. In this paper we use analytic arguments and Monte Carlo simulations to quantitatively study the effects of the demagnetizing field on the dynamics of magnetization switching in two-dimensional, single-domain, kinetic Ising systems. For systems in the weak-field ''stochastic region,'' where magnetization switching is on average effected by the nucleation and growth of a single droplet, the simulation results can be explained by a simple model in which the free energy is a function only of magnetization. In the intermediate-field ''multidroplet region,'' a generalization of Avrami's law involving a magnetization-dependent effective magnetic field gives good agreement with the simulations. The effects of the demagnetizing field do not qualitatively change the droplet-theoretical picture of magnetization switching in highly anisotropic, single-domain ferromagnetic grains, which we recently proposed.